3.4.2 Rationale of the oppression remedy

In earlier times, despite the fact that the majority shareholder's use of a hard hand on the minority was a widely observed practice, legislators and courts were hesitant to provide more protective mechanisms for minority shareholders, fearing that this would excessively interfere with interaal corporate management.1

A petition relating to a director 's duties requires a derivative action,2 but anything recovered in such suit generally goes to the corporation instead of directly to the petitioner.3 Even more disheartening, any compensation, if available, goes to those in control and misconduct is therefore liable to recur, which is an obstacle to bringing a derivative action in a close corporation. To make things worse, the most frequently litigated issues by the minority shareholders, such as freeze-out by the majority either by way of exclusion from employment or withholding dividends, can easily be blocked by those in control by resorting to the business judgement rule.4 When these types of "freeze-outs" are carried out by the majority stockholders, the minority stockholders are deprived of all revenues expected from their investments. The minority shareholders usually cannot afford to wait for a long time and suffer the loss passively. They want to get out of the corporation and reinvest somewhere else. So an effective means of protection which could afford recourse to the aggrieved minority without undercutting the application of the majority rule was needed. This need was met by the enactment of the oppression remedy.5 By relying on the oppression remedy, shareholders can bring up a direct suit for the harm or potential harm to their own interests and do not need to worry about the block set up by the business judgement rule.6 What kinds of claims qualify for protection depends on how the court interprets the term "oppressive conduct".